What is a Wholesale Dealer Bond?
In several states, auto dealers operating wholesale businesses are required to hold a valid license to do business. Licensing requirements vary, but it is likely that a wholesale dealer bond is a necessary part of the process. A wholesale dealer bond is a type of license bond that ensures a wholesale auto dealer will comply with state laws when working with customers. If a dealer fails to act according to regulations, a customer has the opportunity to file a claim against a wholesale dealer bond for compensation, up to the limit of the bond.
A wholesale dealer bond operates like other surety bonds, creating a contract between three parties. The obligee is the state licensing authority requiring a bond to be posted, while the principal is the wholesale auto dealer that must post a bond. The surety company provides the bond to the principal and extends a credit line to cover claims. The wholesale dealer is responsible for repaying any legitimate claim amounts covered by the bond.
What Does a Wholesale Dealer Bond Cost?
One of the factors used to determine the price of a wholesale dealer bond is the total bond amount required by the state. This varies depending on state regulations, ranging from $10,000 to $150,000. Fortunately, wholesale dealers are not responsible for paying the total bond amount. Only a small percentage of the total is charged as the bond premium, typically between 1 and 10% of the bond.
The bond premium you pay as a wholesale dealer depends on your personal credit history as well as your business financials. A low credit score and a credit history that includes negative marks like bankruptcy or civil judgment may lead the surety company to believe you are a high-risk bondholder. Your wholesale dealer bond premium is higher to offset this risk.
How Do I Get a Wholesale Dealer Bond?
You can submit a short online application to start the process of securing a wholesale dealer bond. The surety company provides you with a bond quote after reviewing your application details.